May 4, 2017 / 3:17 PM / a year ago

Home Capital shares drop ahead of court hearing

TORONTO, May 4 (Reuters) - Shares in Canada’s biggest non-bank lender Home Capital Group Inc slipped as much as 5 percent on Thursday ahead of a regulatory hearing against the alternative lender and three of its long-time executives, who stand accused of hiding fraudulent mortgage broker activity from shareholders for months.

The company has suffered a share-price nosedive and run on deposits, prompting the company to secure C$2 billion ($1.5 billion) emergency funding last week.

The Ontario Securities Commission first detailed the accusations on April 19 and the hearing at the OSC’s offices in downtown Toronto is expected to be procedural in nature, with Commissioner Janet Leiper setting out disclosure timelines and announcing date for a first hearing on the merits, according to sources familiar with the matter.

If the panel rules that the respondents broke securities law they can be banned from acting as a director or officer of any issuer, while the company itself could face de-registration.

The OSC alleges that the company and its senior leadership misled investors in an annual report released in February 2015 and a quarterly update in May that year in which they blamed a decline in mortgage originations on external factors including the competitive mortgage marketplace.

Home Capital did not acknowledge the review and subsequent terminations until July 10, 2015. The lender, which offers mortgages to borrowers who do not meet the lending requirements of the country’s biggest banks, has said that it believes its disclosures satisfied requirements, and that it intends to vigorously defend itself.

Late on Wednesday, rating agency DBRS downgraded Home Capital’s senior debt rating, reflecting concerns over the recent events, including the delay in releasing its first quarter earnings.

The shares were down 2.3 percent to C$6.67 by late morning.

The OSC panel is an administrative tribunal that decides whether the evidence submitted proves that the allegations are more likely than not to be true. ($1 = 1.3728 Canadian dollars) (Reporting by Alastair Sharp; Editing by Marguerita Choy)

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